Thursday, January 26, 2012

International Business LAW by Zulfiqar ali Chandio

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Law - body of rules governing relationships among individuals and between individuals and their society.  .

Types of Law

 1.      Constitution - organic law of the land in which all laws emanate there from.

 Function of Constitution:-

          (a)   Serves as organic law

         (b)   Sets up the structure of government for the political unit


         Three Branches of Government:-

         (a)   Legislative - making laws

         (b)   Executive - implementing laws

         (c)    Judiciary - interpreting laws


2.      Statutes - laws created by elected representatives.

3.      Common law - made and applied by judges as they decide cases not governed by statutes.

4.      Equity - when common law rules would produce unfair results, the interest of justice

         and equity would prevail.

5.      Administrative regulations and decisions - decisions/rules made by the administrative bodies.

6.      Treaties - agreements made by the President with foreign governments, and approved by 2/3 of the Senate; invalidated by the people if inconsistent with the national policy.

7.      Ordinances - enactments of municipalities; zoning ordinances.

8.      Executive orders - chief executive has limited power to issue laws.


Classification of Laws

1.      Criminal law and civil law


         (a)   Criminal law - prosecutes someone for committing a crime.

         (b)   Civil law - concerns with obligations that private parties owe to each other.


2.      Substantive and procedural law

         (a)   Substantive - sets the rights and duties of people as they act in the society,, a statute making murder a crime.


         (b) Procedural - controls behavior of government bodies as they establish and enforce rules of substantive law,, the rules describing the proper conduct of a trial.


3.      Public and Private Law


         (a)   Public Law - concerns the powers of government and the relatives between government and private parties,, constitutional law, administrative law, criminal law.


         (b)   Private - establishes a framework of legal rules that enables parties to set the rights and duties they owe each other,, contract, property, agency.


Functions of Law

1.      Peacekeeping.

2.      Checking government power and promoting personal freedom.

3.      Facilitating planning and realization of reasonable expectations.

4.      Promoting economic growth through free competition.

5.      Promoting social justice.

6.      Protecting the environment.




Public wrongs; acts prohibited by the State


Classification of Crimes:-

1.      Felony - is a serious crime such as murder, rape, arson, etc.

2.      Misdemeanor - is a lesser offense such as disorderly conduct or battery resulting in minor physical harm to the victim.




Torts are private wrongs for which the wrongdoer must pay money damages to compensate the harmed victim.


Types of Wrongfulness:-


1.      Intentional tort - intent or desire to cause certain consequences.


2.      Negligence - failure to use reasonable care, with harm to another party occurring as a result.


3.      Recklessness - as a conscious indifference to a known and substantial risk of harm created by one’s behavior.


4.      Strict liability - is liability without fault or liability irrespective of fault.


Criminal law contemplates criminal liability for those who commit crime.


Tort law contemplates civil liability for those who commits tort.


Proof beyond reasonable doubt - is the standard of proof that the plaintiff must satisfy in criminal case.


Preponderance of evidence - is the standard of proof that the plaintiff must satisfy in civil case.

Damages - is the general remedy allowed in civil cases?


Imprisonment of fine - is the remedy allowed in criminal cases.



Contract - is the meeting of mids between two persons whereby one binds himself in relation to the other, to give something or to render some service.


A contract is an agreement creating and defining obligations between the parties. 

This definition consists of two important elements: (1) agreement, and (2) enforceability of law.


The essence of contract is that it is legally enforceable promise or set of promises.


A promise is said to be accepted when the person to whom the proposal is made signifies his assent thereto.  A proposal when accepted it becomes a promise.


Sources of Law Governing Contracts


1.       Uniform Commercial Code - statutory in all states.

2.       Common law of contract - a court-made law.



Basic elements of Contract


1.       Consent - concurrence of the wills o f contracting parties with respect to the object and cause.


          (a)     Concurrence of the offer and acceptance

          (b)     Parties must possess legal capacity

          (c)     Consent must be free


Vices of Consent:

          (a)     Mistake

          (b)     Violence

          (c)     Intimidation

(d)     Undue influence

          (e)     Fraud


2.       Object certain - thing, right or service which is the subject-matter of the obligation.



          (a)     Must be within the commerce of man

          (b)     Must be real or possible

          (c)     Must be licit

          (d)     Must be determinate, or at least possible of determination, as to its kind



3.       Cause - essential reason which moves the contracting parties to enter the contract.



          (a)     Must be in existence

          (b)     Must be licit

          (c)     Must be true


4.       Delivery - in real contracts. 

5.       Formalities - in solemn contracts.

6.       Price certain.





Stages in the Life of a Contract

1.       Generation - formation of the contract.

2.       Perfection - birth of the contract.

3.       Consummation - fulfillment of the purpose of the contract.

Essential Characteristic of Contract

1.       Obligatory force of contract - once perfected, a contract shall be obligatory to both parties.

2.       Autonomy of contract - parties are free to enter into a contract and establish such terms and conditions as they may deem convenient.

3.       Mutuality of contract - position of essential equality occupied y both contracting parties in relation to the contract.

4.       Relativity of contract - contracts shall take effect only between the parties, their assigns and heirs.




Limitations on the Right of the Parties to Stipulate in Contracts

1.       Law                                  

2.       Morals                                    

3.       Good customs             

4.       Public order              

5.       Public policy          


Persons Incapacitated to Give their Consent to a Contract

1.       Unemancipated minors                        

2.       Insane persons                                   

3.       Deaf-mutes who do not know how to read and write

4.       Persons suffering from civil interdiction

5.       Incompetents under guardianship         





Basic Types of Contract


1.       Unilateral - only one party makes a promise.


2.       Bilateral - both parties exchange promises and the contract is formed as soon as the promises are exchanged.

3.       Valid - is one that meets all of the legal requirements for binding a contract.

4.       Unenforceable contract - is one that meets the basic legal requirements for a contract but cannot be enforced because of some other rule either they are entered into without or in excess of authority or both of the contracting parties do not possess the required legal capacity.

5.       Voidable contracts - all the essential elements are present but the element of consent is vitiated; one or more of the parties have the right to cancel their obligations under the contract.

6.       Void contract - all requisites are present but the agreement creates no legal obligations because the cause, object or purpose is contrary to law, no remedy will be given.

7.       Express contract - the parties have directly stated the terms of their contract orally or in writing at the same time the contract was formed.

8.       Implied contract - when the surrounding facts and circumstances indicate that an agreement has in fact been reached.

9.       Executed contract - when all of the parties have fully performed their contractual duties.

  1. Executor contract - a contract is executors until such duties have been fully performed.

Every country has its own contract law.  But what law applies when a contract is between businesses from two different countries?

The United Nations Convention on Contracts for the International Sale of Goods (CISG) is an international body of contract rules that harmonizes contract principles from many legal systems.

How can businesses avoid the possibility of costly litigation over international contract disputes?


Companies entering international transactions often protect themselves from disputes over what body of laws applies to their disputes by including a choice of law clause in their contracts.  This is a provision that states the parties’ agreement that a particular country or state’s law will apply to their contract.


In addition, it is very common for parties in international transactions to include an arbitration clause in their contracts, providing that future disputes between them will be resolved by arbitration.  Using arbitration gives the parties a relatively speedy and affordable dispute resolution process.

Formation and Terms of Sales Contracts

The sale of goods is the transfer of ownership to tangible personal property in exchange for money, other goods, or the performance of services.


Gap Fillers.  If the parties in a sales contract omit terms from their agreement, the law may fill in the blanks with common trade practices unless the parties’ agreement clearly indicates a contrary intent.

Price Terms.  If the parties omitted a price term or left the price to be determined at a future date or by some external means, the Code supplies a price term.


Time for Performance.  If no time for performance is stated in the sales contract, a reasonable time for performance is implied.


Delivery Terms.  If the delivery term of the contract is FOB (free on board) or FAS (Free alongside ship) the place a which the goods originate, the seller is obligated to deliver to the carrier goods that conform to the contract and are properly prepared for shipment to the buyer, and the seller must make a reasonable contract for transportation of the goods on behalf of the buyer.  Under such terms, the goods are at the risk of the buyer during transit and he must pay the shipping charges.  If the term is FOB destination, the seller must deliver the goods to the designated destination and they are at the seller’s risk and expense during transit.


If the contract requires the seller to “ship” the goods t the buyer, then title passes to the buyer when the seller delivers conforming goods to the carrier.




If the contract requires the seller to “deliver” the goods to the buyer, title does not pass to the buyer until the goods are delivered to the buyer and tendered to him.














Forms of Business Organization:-


1.      Sole proprietorship

2.      Partnership

3.      Corporation



Sole Proprietorship





One person owns a business w/o forming a partnership or corporation

By agreement, two or more owners conduct business without forming a corporation


By agreement of owners; must comply with corporation statute




Terminates on death or withdrawal of sole proprietor


Usually unaffected by death or withdrawal of partner


Unaffected by death or withdrawal of shareholder




By sole proprietor

By partners

By board of directors

Owner liability




Limited to capital contribution


Transferability of interest







Government income taxation


Only sole proprietor taxed

Only partners taxed

Corporation taxed; shareholders taxed on dividends


A sole proprietorship has only one owner.  Oftentimes the owner manages the business.  There are no legal formalities in organizing a single proprietorship except for acquiring the license to operate from the local government.  This type of business is limited to the investment of the owner, although he may borrow from banks or other financing institutions.  The owner is solely responsible for all the obligations of the business.


Partnership is an association of two or more persons to carry on as co-owners a business for profit.


Characteristics of Partnership:-                     


1.      Association of two or more persons - As an association, a partnership is a voluntary and consensual relationship.


2.      Carrying on a business - Any trade, occupation, or profession may qualify as a business.


3.      Co-ownership - Partners may co-own the business in which they associate.


4.      Sharing management of a business.


5.      For profit - The owners of an enterprise must intend to make a profit to create a partnership.


6.      Intent - The parties must intend to create a relationship that the law recognizes as a partnership.


A partnership has two or more owners, called partners.  The partners have the right to make all the management decisions for the decisions.  All the profits of the business are shred equally by the partners.


The partners assume personal liability for all the obligations of the business.  All the debts of the business are the debts of all the partners.  Likewise, partners are liable for the torts committed in the course of business by their partners or by partnership employees.  If the assets of the business are insufficient to pay the claims of its creditors, the creditors may require one or more of the partners to pay the claims using their individual, non-business assets.


The partnership has a life apart from its owners.  When a partner dies or otherwise leaves the business, the partnership usually continues.  A partner’s ownership interest in a partnership is not freely transferable.  A purchaser of the partner’s interest is not a partner of the partnership, unless the other partners agree to admit the purchaser as a partner.


Formation of a partnership requires no formalities and may be formed by default.  A partnership is created automatically when two or more persons own a business together without selecting another form.


A limited partnership has one or more general partners and one or more limited partners.  General partners have rights and liabilities similar to partners in a partnership.  They manage the business of the limited partnership and have unlimited liability for the obligations of the limited partnership.  Typically, however, the only general partner is a corporation, thereby protecting the human managers from unlimited liability.


Limited partners usually have no liability for the obligations of the limited partnership once they have paid their capital contributions to the limited partnership.  Limited partners have no right to manage the business, but if they do manage, the nonetheless retain their limited liability.


Partnership capital - is the partner’s contribution when partners contribute cash or other property to the partnership upon its formation.


Duties of Partners to the Partnership and each other:-


1.      Having no interest adverse to partnership.


2.      Not competing against the partnership.          

3.      Duty to serve.               

4.      Duty of care.                 

5.      Duty to act within actual authority.      

6.      Duty to account.           

7.      Other duties.                 


A partner’s compensation for working for a partnership is a share of the profits of the business.  Unless there is an agreement to the contrary, partner’s share partnership profits equally, according to the number of partners, and not according to their capital contributions or the amount of time that each devotes to the partnership.  When the partnership agreement is silent on how to share losses, losses are shared in the same proportion that profits are shared.


When a partner dissociates from a partnership, the next step may be dissolution and winding up on the partnership’s business.  This involves the orderly liquidation - or sale - of the assets of the business.


Events Causing Dissolution and Winding up :-


1.      Expiration of term.

2.      Completion of undertaking.              

3.      By agreement of the partners to wind up.

4.      By express withdrawal by a partner.

5.      When business of the partnership becomes unlawful.

6.             By court’s decision.

After the partnership’s assets have been sold during winding up, the proceeds are distributed to those persons who have claims against the partnership.  Not only creditors but also partners have claims against the proceeds.  The claims of creditors must be satisfied first, then the remaining proceeds will be distributed to the partners according to the net amounts in their capital accounts.


After the assets of a partnership have been distributed, termination of the partnership occurs automatically.


Negotiable Instruments


Commercial paper is basically a contract for the payment of money.  It may serve as a substitute for money payable immediately, such as a check.  Or, it can be used as a means of extending credit.


Negotiable instruments are a special kind of commercial paper that can pass readily though our financial system and is accepted in place of money.  Negotiability is an attribute which they can generally be transferred from party to party and accepted as a substitute for money.


The two basic types of negotiable instruments are promises to pay money and orders to pay money.  Promissory notes and certificates of deposit issued by banks are promises to pay someone money.  Checks and drafts are orders to another person to pay money to a third person.



The promissory note is the simplest form of commercial paper; it is simply a promise to pay money.  A promissory note is a two-party instrument in which one person (known as the marker)  makes an unconditional promise in writing to pay another person (the payee), a person specified by that person, or the bearer of the instrument, a fixed amount of money, with or without interest, either on demand or at a specified future time.


A draft is a form of commercial paper that involves an order to pay money rather than a promise to pay money.  The most common example of a draft is a check.  A draft has three parties to it : one person (known as the drawer) orders a second person (the drawee) to pay a certain sum of money to a third person (the payee), to a person specified by that person, or to bearer.  A check is a draft payable on demand and drawn on a bank (a bank is the drawee or person to whom the order to pay is addressed).  Checks are the most widely used form of commercial paper.  The issuer of a check orders the bank at which she maintains an account to pay a specified person, or someone designated by that person, a fixed amount of money from the account.



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